Presco PLC FY’20 – Border Reopening; a drag to earnings in FY’21

Date:

Topline growth supported by higher CPO pricing

Thank you for reading this post, don't forget to subscribe!

Following a rather weak FY’19 earnings performance which saw Presco report a 56% moderation in PAT (excluding revaluation gains), bottom line surged 86% y/y to ₦5.0 billion in FY’20 (excluding revaluation gains), albeit 14% below our ₦5.8 billion expectation.

The earnings appreciation was mostly driven by a recovery in FY’20 topline following the decision by the FG to close off land borders in Q3’19.

The resulting reduction in supply supported CPO pricing in the latter half of 2019 and through 2020, taking FY’20 topline 21% higher y/y to ₦23.9 billion, albeit 4% below our ₦24.8 billion estimates.

Furthermore, with the company opening up a new CPO processing facility in H1’20, we believe that higher CPO volume rollout also contributed to the increased topline. With the land borders reopened at the tail end of 2020, we foresee an increase in CPO supply and a consequent fall in CPO pricing.

That said, we expect the large spread between the official and parallel market rates to temper the fall in CPO prices, as CPO imports are ineligible for forex at the official windows. Accordingly, we estimate a mild 3% y/y drop in FY’21 Revenue to ₦23.3 billion.

Cost containment strengthens the bottom line

Similar to Okomuoil, Presco recorded sizeable improvements in cost containment, reporting a near 300bps jump in EBIT margin to 35%, with FY’20 EBIT jumping 34% y/y to ₦8.4 billion (excluding revaluation gains).

Notably, even as inflationary pressures dragged gross margin, the uptick in EBIT was largely driven by a 25% y/y reduction in OPEX.

Furthermore, as highlighted in our FY’21 outlook, the CPO manufacturer recorded a ₦2.1 billion gain on the revaluation of biological assets. We had predicted this gain on the back of the rising value of the USD versus the NGN and the increase in global CPO prices in FY’20.

Finally, with its debt balance falling 25% y/y, Presco reported a 26% y/y drop in interest expense to ₦1.5 billion, taking PBT 63% higher y/y to ₦6.9 billion.

Price appreciation prompts SELL recommendation

Even as we foresee sustained inflationary pressures on cost lines, we expect Presco to maintain its EBIT margin in FY’21, reporting an EBIT margin of 35% and an absolute EBIT value of ₦8.1 billion.

That said, amid an expected rise in average interest rates, we foresee an 8% y/y increase in Interest expense to ₦1.7 billion, taking FY’21 PBT to ₦6.4 billion.

After adjusting for tax, we arrive at an FY’21 PAT of ₦4.6 billion and a 12-month Target Price of ₦71.12. Despite the rise in intrinsic valuation, the c.5% increase in market price since the last valuation keeps PRESCO’s recommendation as aSELL.

Presco PLC FY'20 - Border Reopening; a drag to earnings in FY'21 brandspurng

 

OyinyeChukwu Paula
OyinyeChukwu Paulahttp://Vetiva%20Research
OyinyeChukwu Paula Position: Business Journalist, Naija247news OyinyeChukwu Paula is an accomplished business journalist contributing her expertise to Naija247news, one of Nigeria's leading news platforms. With a keen interest in economic affairs, financial markets, and corporate developments, Paula brings a wealth of knowledge to her reporting, delivering insightful analyses on the dynamic business landscape in Nigeria and beyond. Education: Paula holds a degree in Journalism from [Abia State University], where she honed her skills in investigative reporting and business journalism. Her academic background laid the foundation for her commitment to delivering accurate and timely news with a business-focused perspective. Professional Experience: Having amassed experience in the field, Paula's journalistic journey has been marked by a dedication to uncovering stories that impact the business community. Her work spans interviews with key industry figures, coverage of market trends, and in-depth analyses of economic policies. Areas of Expertise: Financial Markets: Paula provides comprehensive coverage of financial markets, offering insights into stock movements, currency fluctuations, and economic indicators. Corporate Affairs: With a focus on corporate activities, Paula delves into mergers and acquisitions, financial reports, and the strategies employed by leading companies. Economic Policy: Keeping a watchful eye on government policies, Paula explores their implications on businesses and the broader economy, providing readers with a nuanced understanding of economic developments. Contributions to Naija247news: Paula's bylines at Naija247news reflect her commitment to delivering quality journalism. Whether unraveling complex financial narratives or simplifying intricate economic concepts, she ensures that her audience is well-informed and empowered. Passion for Business Journalism: Beyond the newsroom, Paula is known for her passion for business journalism's role in fostering transparency and accountability. She believes in the power of information to drive positive change and economic growth. In a media landscape marked by rapid changes, OyinyeChukwu Paula stands out as a dedicated business journalist who continues to shape the discourse on economic matters, contributing significantly to Naija247news's mission of delivering credible and impactful news.

Share post:

Subscribe

Popular

More like this
Related

Army declares eight wanted in connection with the k!lling of its officers in Okuama

March 28, 2024. Azonuchechi Chukwu. The Nigerian Army has declared eight...

Naira Appreciates Against Dollar at the NAFEM Window

March 28, 2024. Azonuchechi Chukwu. The Naira’s euphoric appreciation against the...

FG directs banks to deduct 0.375% stamp duty charges on all loans

March 28, 2024. Azonuchechi Chukwu. The Federal Government has directed commercial...

INEC disowns Anambra LP convention

28 Mar,2024 The Independent National Electoral Commission (INEC) has disowned...
Social Media Auto Publish Powered By : XYZScripts.com

Discover more from Naija247news

Subscribe now to keep reading and get access to the full archive.

Continue reading